News
06/03/26
Calif. refiners warn emission rules risk closures
Houston, 6 March (Argus) — US refiners in California including PBF Energy and
Chevron strongly oppose proposed state emissions rules, saying the rules will
lead to more closures and spiking fuel prices for consumers. The California Air
Resources Board (CARB) is seeking to remove 118mn metric tonnes (t) of carbon
allowances over the near term and implement several program adjustments as part
of a draft package aimed at keeping the state on track for its 2030 greenhouse
gas (GHG) reduction target. The program is designed to achieve a 40pc cut in
statewide emissions from 1990 levels by 2030 and support California's 2045
net-zero goal. However, the costs to comply under the proposed amendments will
"cripple the survivability of the state's remaining refineries" and "upend
California's fuels market", Chevron president of downstream, midstream and
chemicals Andy Walz said in a letter this week to California governor Gavin
Newsom (D) and other state officials. The rules will also cause California to
increase reliance "on costly and slow-to-arrive foreign imports that are ill
suited to respond to supply shocks and carry higher lifecycle emissions", Walz
said. Chevron operates two large refineries in California — the 285,000 b/d El
Segundo and the 245,000 b/d Richmond facility. Fellow refiner PBF Energy
concurred, saying that the proposed amendments as written would make costs
"skyrocket" and "drive in-state refining capacity to zero", according to a 25
February filing to CARB, which is holding a public comment period for the
proposed changes through 9 March. PBF's costs to comply with the proposed
regulations would increase to $308mn annually by 2035, a 400pc jump from 2024,
while competing importers are exempt from paying cap-and-invest fees, the
company said. PBF operates two California plants, the 156,400 b/d Martinez
refinery and the 160,000 b/d Torrance refinery. Under the current system,
in-state refineries receive free allowances as part of the Emissions Intensive,
Trade Exposed (EITE) sector, while importers buy allowances at auction. CARB is
mulling replacing its fossil fuel-based emissions product benchmark with one
that rewards facilities that shift to biofuels. Starting in 2031, refineries
would receive free allowances for producing fuels such as gasoline blendstocks,
allowing facilities that have shifted to biofuels to qualify for free
allowances. CARB uses these product-based benchmarks to allocate free allowances
to industry based on quantity of emissions for each unit produced, rewarding
reductions in emissions intensity. Under the proposed rules, importers could
still buy allowances at auction. The planned 118mn t removal represents the
minimum reduction of options CARB had considered to address the program's
accumulated allowance surplus since its launch. CARB proposed additional
reductions to the 2030-45 allowance budget to support the long-term emissions
target. But the shutdown of Phillips 66's Los Angeles refining complex last year
and Valero's ongoing idling of its 145,000 b/d Benicia refinery will leave more
allowances available for purchase at state auctions. The closures, which will
shut about 17pc of the state's refining capacity, have also raised supply
concerns in California's sometimes volatile fuels market and the impact on
neighboring states. The Western States Petroleum Association (WSPA), a lobbying
group that often represents the industry in state negotiations, said that
complying with the proposed cap-and-invest program will cost California refiners
an estimated $1.5bn a year by 2035 compared with $357mn a year in 2026, citing
an analysis by Capitol Matrix Consulting. "For an industry already operating
under uniquely high costs and narrow margins in California, this additional
burden is not manageable, it is existential," WSPA said in a 25 February letter
to Newsom and other state officials. 'Familiar arguments' Environmental groups
counter that the industry is repeating familiar arguments. "They are running the
same playbook we have seen before, which is [where] they say, ‘oh my gosh if you
do x, y or z then gas prices are going to go through the roof'… and the sky has
not fallen yet," Environmental Defense Fund (EDF) California state director
Katelyn Roedner Sutter said in an interview with Argus . The future of refining
in the state depends on global market shifts as much as state climate policy,
she added. California lawmakers are unlikely to re-open the cap-and-invest
statute during the current legislative session, but they are pressing CARB on
the affordability impacts of the proposed amendments on electricity and
transportation fuels. CARB plans to bring a final proposal for its board to
review as early as 28 May, with implementation by 1 September. By Eunice Bridges
and Denise Cathey Send comments and request more information at
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